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US non−farm payrolls fall 263k in Sep

Mon, Oct 5 2009, 05:58 GMT
by Westpac Institutional Bank Team

Westpac Institutional Bank  |  View company's profile

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The disappointing US payrolls report contributed to another down day in US equities, which in turn, kept a lid on risk currencies. The S&P500 dropped by 1% at the open, and spent the session’s remainder consolidating for a net 0.5% loss. European equities posted larger 1-2% losses, and oil (-1.2%) and copper (-2.0%) behaved as expected. The weak ISM factory orders report later had a negligible effect. The payrolls report gave US 10yr notes a 6bp boost down to 3.10% yield, but a long market was frightened by a fresh record growth rate high in leading indicator ECRI and supply concerns, among other things, and sold the notes to 3.22%. The brief G7 communique spoke of unwelcome currency volatility and welcomed any renminbi strength, but had little for markets. Unofficial comments post-meeting from the US regarding dollar strength and from Japan threatening intervention were more pointed.

The US dollar remained locked in its six-day ascending range, the initial buying countered with traders looking to sell into any dollar strength. EUR dipped to 1.4480 (a three week low) on US payrolls, but spiked to 1.4650 shortly afterwards, closing around 1.4570. GBP performed similarly, to 1.5805 and then 1.5955, but holding that level at the close. USD/ JPY fell to 88.60 post-payrolls, but recovered to 89.95 afterwards.

AUD slipped after Sydney closed to 0.8570, a two week low, but recovered to 0.8708, closing in NY around 0.8650.

NZD slipped to 0.7080, recovering to 0.7210, before resting around 0.7160. AUD/NZD fell to 1.2053, the bottom of the five-month long channel providing support.

US non-farm payrolls fall 263k in Sep. The 263k payrolls decline, while more than 100k steeper than our forecast –150k, is still the second best outcome (after August’s revised 201k fall) since July last year. However other detail in the report was disappointing. The separate household survey found 785k job losses, its steepest fall since the beginning of this year, and as a consequence, the jobless rate rose by nearly 0.2 pts from 9.66% to 9.83%. Average hourly earnings rose by just 1 cent which is less than 0.1%, their slowest since June, and hours worked fell 0.5%. Together, these last two stats point to negative household income growth in September.

US factory goods orders fell 0.8% in August, weighed down by the previously known fall in durables, with some offset from the boost to non-durable orders values from higher energy prices. Factory inventories fell at a less steep pace in August but not yet enough to ensure a decent contribution from stock-building to Q3 GDP growth.

Fedspeak: Boston Fed chief Rosengren said that “It is important that monetary and fiscal policy continue to support the economy until private-sector spending has resumed, and until we are confident that the recovery will continue once the programs that have supported the economy over the past year are removed.”

Euroland producer prices rose 0.4% in August but the annual pace of decline eased from –8.4% yr to –7.5% yr, thanks to base effects (last year’s energy price falls dropping out of the calculation) that will persist for the next eight months and add a further 7.9 ppts to the annual rate by next April (ie turning it positive again, assuming flat monthly outcomes over that period).

UK construction PMI falls from 47.7 to 46.7 in Sep. The pace of contraction of the UK construction sector steepened a little again in September, although house prices have risen back to where they were a year ago, according to the Nationwide. Also, the Bank of England reported £7bn of mortgage equity injection in Q2, the fifth quarter running that there has not been a net withdrawal of mortgage equity.

Outlook today

AUD/USD and NZD/USD outlook today: AUD/USD and NZD/USD outlook today: Westpac’s US data surprise index declined sharply on Friday, warning of more US data disappointments to come, and the technical picture continues to suggest a reversal in risk appetite may be unfolding. Against that, the data downunder remains supportive of AUD and NZD. On the day, AUD should be supported around 0.8550, and NZD by the 0.7100- 0.7150 area.

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Published on  Mon, Oct 5 2009, 06:04 GMT

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